What does terrorism have to do with copper and its breakdown to a seven-month low? More than you might think. Since Sept. 11, fewer insurance companies have been willing to write policies covering acts of terrorism. And those insurers that do provide coverage are doing so at rates that are unaffordable for many businesses. The lack of affordable and comprehensive insurance reportedly has put $8 billion of dollars worth of commercial real estate projects on hold, while legislators seek a solution to back insurers. Both houses of Congress have written separate terrorism insurance bills in an attempt to address the problem. But the bills are different enough that a committee has had to be appointed to strike a compromise between them. Congress is adjourning for its summer recess, making it unlikely the committee will complete any compromise by the anniversary of the tragedy. With billions of dollars worth of commercial projects on the back burner, demand from the industry that is one of the largest users of the metal continues waning. Tons of the metal that otherwise would be destined for wiring, piping or other industrial construction uses remains in warehouses. The absence of a terrorism insurance bill or a date for its implementation is only exacerbating the low-demand situation in copper. Technically, September copper (HGU2:COMEX) has negated its July 24 reversal tail by closing below that bar in four of the past five sessions. In another negative sign, on Wednesday copper triggered out of a pullback from a low setup, paving the way for lower lows ahead.
The Brazilian Infection
The September euro FX (ECU2:CME) continues exhibiting signs of weakness despite reports showing the U.S. economic recovery is proceeding at a moderate pace. The focus on expectations about relative economic performance between the U.S. and Europe, and about American corporate malfeasance, has shifted recently. The collapse of the Brazilian real is now taking center stage. Europe is considered more heavily exposed to Brazil than the U.S. is, and it has more to lose in the event the real continues nosediving. Argentina and Uruguay are also in bad shape. A worsening of the Latin American contagion would likely send investors to the perceived relative safety of the recently battered dollar, further hurting the euro FX. The .9540 to .9555 level -- a level marked by a tight Fibonacci retracement cluster -- could act as a magnet, drawing the euro FX to the downside.
October hogs (LCV2:CME) recently matched a two-month high, forming the right side of a cup, and have pulled back for the past two weeks to form the handle of a cup-and-handle pattern. Hogs have also consolidated in a low volatility situation , meaning a larger-than-normal move is likely to occur in the next few sessions. Although low volatility setups do not indicate market direction -- only that an outsized move is likely -- the recent upside action and cup-and-handle pattern suggest the move out of the consolidation will be up.